Priority Sector Lending

Priority Sector Lending

The Reserve Bank of India decides to allot funds to predetermined priority sectors of the economy that may require credit and financial assistance, especially in cases where the lack of PSL will lead to the heavy losses to the participants of that sector in some cases. Priority Sectors Lending is the role exercised by the RBI to banks, imploring them to dedicate funds for specific sectors of the economy like agriculture and allied activities, education and housing and food for The goal of a PSL initiative is to provide credit to the weaker sections of the society, as opposed to funding only profitable sectors or spaces that are solely important to economic growth. All sectors considered as a priority are able to easily access financial support like apply for loans that the banks are required to allot at a lower interest rate.

• The following fall into the priority sectors under the policy: agriculture (including micro financing groups like SHGs, JLGs, individual farmers, and other institutions dedicated to individuals working in the sector), micro, small and medium scale enterprises (MSMEs) and SSIs, Educational and Small Scale Industrial loans, Housing loans and other micro credit finances.
• When banks overreach their PSL targets and need additional funding to raise funds for the priority sectors, they are able to issue PSL certificates (PSLCs) only to the extent of the amount banks are allowed to lend in that specific sector. These certificates can be traded on RBI’s e-Kuber platform.

In banking law in India, there are provisions for priority lending and promotion of underprivileged classes. These provisions aim to ensure that certain sections of society, such as farmers, small-scale industries, and marginalised communities, have access to credit and financial services.

Priority lending refers to the practice of banks giving a certain percentage of their loans to priority sectors identified by the Reserve Bank of India (RBI). These sectors include agriculture, micro, small, and medium enterprises (MSMEs), education, housing, and others. The purpose of priority lending is to support the development of these sectors and promote inclusive growth.

Banks are required to allocate a specific percentage of their total lending to these priority sectors. The exact percentage is determined by the RBI and may vary from time to time. Failure to meet these targets can result in penalties for the banks.

In addition to priority lending, there are also provisions for the promotion of underprivileged classes in banking law. These provisions aim to ensure that individuals from marginalized communities, such as Scheduled Castes (SCs) and Scheduled Tribes (STs), have access to credit and financial services on an equal basis.

Banks are required to set aside a certain percentage of their lending for these underprivileged classes. This is known as the priority sector sub-target for lending to SCs and STs. The RBI sets specific targets for banks to meet in this regard.

The objective of these provisions is to address the historical disadvantages faced by these communities and promote their socio-economic development. By providing them with access to credit and financial services, it is hoped that they will be able to improve their livelihoods and participate more fully in the economy.

Overall, priority lending and the promotion of underprivileged classes in banking law in India are important measures to promote inclusive growth and reduce economic disparities in the country.